Lean is fast becoming a topic of interest for top management at Middle East banks. The low Cost to Income Ratios (CIR), typically enjoyed by banks in the region result in cost reduction being pushed down on the agendas of the CEOs. However management is recognising that lean is not limited to reducing costs; but more about creating superior customer experience and redeploying talent effectively within the bank. The large number of banks operating in the region and the scarcity of experienced resources in this part of the world makes these two aspects of lean transformations particularly appealing to local banks.
The initial wave of lean programs first permeated the financial sphere in 2008, when the world was in the throes of a colossal economic crisis. The concept — considered both a methodology and a management philosophy — emerged to provide financial market players reeling from the economic meltdown with a path back to prosperity.
So, how does it work? The lean transformation redefines core areas of an institution’s operating model: its processes, its structure and its organisation. Until today, these three domains form the key pillars that must be addressed to ensure a sustainable lean program.
Essentially, lean aims to progressively reinvent the organisation and its ecosystem in many ways by building a ‘learning organisation’ — one that is strongly guided by a culture of continuous improvement and focuses on creating value for customers at a minimal appropriate cost. A cost-oriented approach is generally what triggers the adoption of a lean program or at least a process redesign. Over time, however, financial institutions that have embarked on a lean journey have realised that the program actually delivers increased customer satisfaction, capacity creation and reduced risk.
At BCG, we have witnessed first-hand the far-reaching ripple effect of lean, when embedded in the context of the Middle East. As part of a recent project with a GCC bank, we applied the lean methodology focusing on corporate credit and the front office every aspect of the bank, such as credit management and administration, sales, operations, IT, risk, compliance and legal. We also engaged heavily with the senior management and the board of director to carry the lean vision forward.
In this specific case, the three pillars of a lean program were addressed via a comprehensive redesign of the end-to-end process, a structural reconfiguration of workloads — so they could be balanced across departments — and finally, a reorganisation of the sales and credit divisions. Of course, the employees’ unwavering level of engagement was pivotal to the success of the initiative; they were fully committed and willing to take ownership of the learning experience and spearhead improvement efforts.
Cultivating a lean culture in this financial institution produced the desired outcomes across the three dimensions mentioned earlier. First and foremost, customer satisfaction increased thanks to quicker turnaround times in credit decisions — up to 30 per cent — and reduced bureaucracy. Moreover, the changes to the process helped free up capacity — up to 15 per cent — for credit analysts. This, in turn, meant that their services could be redeployed in other areas of the bank, including and especially the front office to target a growth in revenues. Lastly, by offering a more simplified procedure and clear accountability, the lean approach worked to reduce overall risk for the bank.
Our experience with this GCC bank further cemented our belief that, for the lean transformation to reap real results, a cultural change must occur within the organisation. This entails planning, from inception, how the program must be set up, where it should begin and how it could expand and remain sustainable.
Our involvement with the GCC bank also served as a strong testament to the importance of starting with a pilot project that is cross-functional. This is the most effective way to validate the lean concept internally, build advocacy and commitment, fine-tune methodologies, and demonstrate the potential benefits of the whole initiative.
The Middle East’s banking sector is both complex and fast-growing. The lean strategy is, today, a powerful way for the region’s financial institutions to assure their survival and gain long-term advantage.
— Reinhold Leichtfuss is Senior Partner and Managing Director in BCG’s Dubai office, and the head of BCG’s Financial Institutions Practice in the Middle East and the European Retail Banking Practice. Joe Azzopardiis is Principal in BCG’s Dubai Office.